My husband has a pretty common problem that's dragging down his credit score. His company doesn't issue corporate credit cards so he has to put all of his business related expenses on his own Visa. Although his firm reimburses him fairly quickly, the extra charges are running up his credit utilization ratio.
What is a credit utilization ratio and why does it matter? This number measures how much you spend versus your total available credit. This figure is very important because it makes up 30% of your credit score, says John Ulzheimer, president of consumer education for SmartCredit.com. In general, you don't want your ratio to go above 30%. But if you want a great score, you probably should use no more than 10% of your credit line.
The trouble is that my husband travels extensively for work and entertains clients and colleagues regularly. On his last statement, a trip to Los Angeles along with meals around Manhattan and Westchester added up to around $2,000.
My husband's credit utilization ratio still isn't horrible, despite the extra charges. But those added expenses no longer allow him to qualify for the best possible credit score. This is troubling considering we are planning on applying for a mortgage next year.
So what should my husband and other folks like him do? Ulzheimer recommends taking out a small business credit card and putting all work related expenses on it. The beauty of these cards is that they keep debt off your personal credit report, he says.
I asked Ulzheimer if just anyone can get such a card. After all, my husband doesn't run his own small business. Turns out lenders are issuing them fairly freely. Thanks to the Card Act, small business cards are exempt from some of the consumer protections that personal credit cards now enjoy. So banks are eager for more people to use small biz cards. Well this explains why both my husband and I have received multiple mail solicitations for these cards over the past year.
Using a small business card isn't ideal for everyone. Ulzheimer warns that they can have some pretty hefty interest rates. So they aren't appropriate for consumers who tend to carry a balance. But they can be very useful for folks who know their companies will reimburse them quickly and that they can always pay off a balance at the end of the billing cycle.
Does your company provide its employees with corporate credit cards?
Stacey Bradford is the author of The Wall Street Journal Financial Guidebook for New Parents.
Commerce Credit Card image courtesy of Flickr, CC 2.0.
More on CBS Money Watch:
4 Reasons to Skip Store Credit Cards
Top Countries for Expat Families
Etiquette for Your Spouse's Company Holiday Party
Charitable Donations: What You Can and Can't Write Off